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Making the Problem Worse

Oregon is responding to its housing affordability crisis by doing all the wrong things. The crisis is due to a shortage in supply which in turn is due to urban-growth boundaries.

So the legislature legalized inclusionary zoning ordinances and Portland passed one. Such ordinances require developers to provide a certain percent of the homes they build to low-income people at below-market rates. In response, developers are building fewer homes, exacerbating the supply problem. City officials “hope the slowdown is temporary,” but that hasn’t proven to be the case in other cities that passed inclusionary zoning ordinances.

Now the state legislature is considering a bill to provide $5 million to help first-time home buyers make down payments on homes. This will have the effect of increasing demand, which will only drive up prices even more.

The real problem is that Oregon is in dewillamette* about the real problem. Few politicians dare to admit that the land-use restrictions their predecessors imposed on the state decades ago are the reason for high housing prices.

The supposed purpose of those rules was to protect Oregon’s farmlands. Now, the extremely wealthy are buying up farms and ranches and turning them into hobby farms. It’s not quite as bad as Hawaii, where land-use rules destroyed the state’s agricultural industry by making housing too expensive for farm workers, but it is still an sad unintended consequence of oppressive government regulation.

* Like the Nile, a north-flowing river in Egypt. the Willamette is a north-flowing river in Oregon.

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7 thoughts on “Making the Problem Worse”

Groan.
On a recent cross-country drive I stopped in at a gas station around 2:00am Sunday morning. Inside I found the cashier engaged in conversation with two fellows who must have just got off work from their jobs in a nightclub or bar. All three of them were comparing the many different lottery products available for purchase at the gas station: $25 scratch-off cards, $5 scratch-off cards, regular tickets, who knows what else. One of them said: “I know the $25 card is guaranteed 1 out of 4 wins, but it sure is hard to make up the difference when you buy four!”
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Our elected leaders push this lottery stuff on us. How can we expect them to make any good decisions when they allow the lottery???

Russ Roberts: But I want to talk about housing in particular. It’s really attractive for young people to live in vibrant cities like New York, Washington, Boston, San Francisco; and it’s incredibly expensive. And it’s not just the fact that the demand is high because it’s nice to live there. The restrictions on supply have made the rents dramatically higher. How much of that is part of the problem?

Tyler Cowen: I don’t think we have a way of measuring that empirically, how much of the problem it’s explaining. I think it’s most likely the single most important factor. And the complacency is the general social notion that as long as we’re “making our cities nicer,” that there’s not some long run consequence to all of this, and we can more or less ignore that and feel good about the fact that Washington, D.C. is a more gentrified place than it was, say, 10 or 15 years ago. And of course also much more expensive.

What’s the primary driver in my Oregon town (with a UGB) where there is more than 100 acres of unused land inside the city limits, yet housing prices are up more than 7% in the last year, and it’s very difficult to find a rental or a place to purchase?

Who owns that 100 acres and how easy is it for them to get permits to develop it? In many Oregon cities, it takes years to get the permits, and they can charge more than $50,000 per lot for impact fees.

The 100+ acres of empty land is owned by a variety of private land owners. I would be interested in researching how easy it is to get permits here. Can you direct my research on this? Navigating bureaucracy is not my hobby.

Frank, you may be able to find out by proxy, by other projects that are being done. When I lived in Denver, a block up the street they built the Watermark apartments. IIRC, that took them 8 years from the time they got the ball rolling. They went from a housing market was just to heat up, through a housing boom, and into the bust before they were completing condos to sell. A couple years shorter and they would’ve been reaping the rewards of the bubble rather than trying to sell units in it’s wake.

Sounds like the stuff my dad complained about in California when I was a kid. He said something like they had to build cheap houses in Santa Cruz, so that meant building them in Live Oak(?). It really helped, the median house price is $795E3. My friend says that it requires a household income of $100E3 to live there.